Strengthening the Family - Implications for International Development (UNU, 1991, 268 pages)

Economic perspectives on the family

Introduction

Definitions of the family and household

The new home economics

Concepts in the analysis of household/family behaviour

Methods for predicting the impact of development inputs on families

Findings relevant to the family

Insights regarding family social wellness

References

Introduction

The behaviour of families was neglected by economists until the
1950s (Becker 1981). Now, their growing awareness of family behaviour is
hastening the incorporation of family life into the mainstream of economics. In
turning their attention to the household or family, economists and economic
demographers are analysing the underlying ways in which the rules of the market
govern the consumption, production, and welfare of family members and the
structure of the family itself. Family economics is now a respectable and
growing field (Becker
1965).

Definitions of the family and household

Economists focus on the household - a residential unit - whose
members pool their resources (at least to some degree) to provide for the
welfare of all. Households usually consist of family members linked by blood or
marriage, occasionally augmented by unrelated members. Households are defined on
the basis of residence, while families are defined primarily by kinship.

The household is not an undifferentiated unit, but "an economy in
microcosm, a system of exchanges, entitlements, and responsibilities allocated
among members in a group whose boundaries are far from clear" (Rogers 1990).
According to Guyer (1980), it is "a particularly dense center in a network of
exchange relationships." Within the group residing together, there may be
further distinctions between those who do and do not carry out domestic
functions together, such as cooking, eating, child care, and farm labour (Webb
1989; Heywood 1990). Therefore different analyses of the same household may
identify different subgroups of
individuals.

The new home economics

The branch of economics concerned with intra-household or family
dynamics is known as the "new household economics" (NHE). Prior to NHE, the
household was treated as a "black box" (Pollak 1985) no attempt was made to
model the dynamics of intra-household decision-making. The tendency to treat the
household as a black box tells us nothing about how its decision-making process
is structured by the complex interests and different capacities of family
members. The NHE brings economic theory into the microcosm of the household,
building on the observation by Becker (1965), "A household is truly a 'small
factory': it combines capital goods, raw materials and labour to clean, feed,
procreate and otherwise produce useful commodities." NHE redefines household
satisfaction in terms of intangible products or utilities. Households are viewed
as "consuming" the things that satisfy them, such as the health of their
members, bright and successful children, or relaxation (Berman, Kendall, and
Bhattacharyya 1994). These ultimate consumption goods are considered to be
"commodities. "

Sen (1990), refines the terms that he believes should be applied
to the measures of individual well-being in these analyses. He suggests that the
intangible outcomes should be considered as capabilities of persons, or positive
freedoms that the different members of the family can enjoy. He points out that
such a capabilities perspective is particularly useful for evaluating social
conditions and programmes in relation to children, in terms of freedom from
undernourishment and nutrition-related diseases and of developmental
capabilities. Such research should address both the immediate benefit aspects
and the investment aspects of personal consumption - e.g. in looking after
children, short-term considerations must be balanced against long-term concerns
for the well-being of the next generation and the support of the parents in old
age.

Concepts in the analysis of household/family behaviour

As explained by Kennedy and Rogers (1992), there are three common
approaches to analysing intra-household behaviour, which contribute different
useful perspectives to understanding family dynamics. These concepts are equally
applicable to non-residential kinship or family structures, to the extent that
these groups also share resources and responsibilities.

NHE research on the family began by questioning and rejecting the
first of these approaches, which is the neoclassical "unified household
preference function," or black box (Becker 1981; Folbre 1986). Theorists using
this model tend to make an assumption of altruism in the family, in which all
household resources are pooled and then reallocated according to some common
rule that benefits all family members (Becker 1981). Neoclassical analysis uses
relatively simple regression equations that calculate the "outcome" only as a
function of inputs from outside the household, disregarding decision-making
inside the household. These analyses assume that the household maximizes its
unified household preferences (Rosenzweig and Schultz 1983), given its budget
and production constraints. This assumption of altruism-unified preference
within the household is in contrast to expectations of naked self-interest in
the market (Berk 1980; Folbre 1989). Thus, the altruistic household was viewed
as "the haven in the heartless world" of market competition (Lasch 1977).

Research within the past 15 years, however, has demonstrated the
existence of separate, different, and often conflicting preference functions of
individual members (Jones 1983). Given the different preferences, household
behaviour can be described using a bargaining model (Manser and Brown 1980;
McElroy and Homey 1981), according to which individual members pursue their own
interests, given their relative bargaining positions inside the household.
Simplistic assumptions that families are in harmonious agreement or consensus
regarding the use of household resources (Samuelson 1956), or that each
household has one altruistic member who works things out for the benefit of all
(Becker 1974; 1981), have been shown to be inaccurate.

Some bargaining models apply mathematical game theory to marriage
and household decision-making (Manser and Brown 1980; McElroy and Homey 1981).
They include models of cooperative conflict (Sen 1990), which address situations
in which there are many cooperative outcomes that would be more beneficial to
all the parties than non-cooperation, but where the different family members
have conflicting interests in the choice among these cooperative arrangements.

Bargaining is supplemented by an "implicit contracts" model
(Folbre 1989) that sees the family as governed by culturally determined
expectations about the entitlements and obligations of individuals in different
positions within a household unit. This model explains why people who lack
bargaining power retain access to some household resources. Individuals pursuing
their own selfinterest also are bound by ties of affection as well as implicit
contracts. These traditional norms can be viewed as the cultural "fall-back"
position for men and women who are unwilling to invest time and energy in
bargaining over alternative allocation (Pollak 1985), or as the upper and lower
bounds on acceptable behaviour within which bargaining can be applied (Kennedy
and Rogers 1992). These norms are often held in place by powerful legal and
institutional factors that determine the disposition of household assets, such
as family laws regarding property rights and social entitlements (Folbre 1992).
Changes in these institutional factors may have greater effects on
intra-household bargaining than changes in individual market earnings or assets.

Individual earning power increases bargaining power. An
individual's bargaining power is determined in part by his or her "threat point"
- the point at which the person believes he or she would be better off outside
the household unit than in it. The greater a person's income-earning
opportunities outside the household, the higher the threat point and thus the
greater the bargaining power within the household. Another type of threat-point
analysis defines the threat point not as divorce, but as a non-cooperative or
asymmetric equilibrium within marriage, which may be reflected in different
roles for men and women and different use of resources. Such analyses explain
why child allowance schemes that pay the mother may have different effects from
those that pay the father (Lundberg and Pollak 1992). To the extent that
interventions alter the first type of threat point, they may create shifts in
the family structure, while alterations in the second may influence
intra-household tasks and benefits.

Pollak (1985) applies a less-developed "transaction cost" approach
to intra-household transactions. The premise of transaction cost analysis is
that organizations (including families and households) seek institutional modes
for organizing transactions that minimize transaction costs. Pollak applies
theories regarding the boundaries, structure, and internal organization of
commercial firms to families, treating the family as a governance structure,
with supplier-customer contract relationships. He views family governance in
terms of incentives, monitoring, altruism, and
loyalty.

Methods for predicting the impact of development inputs on families

The family's relationship to the use of development assistance is
modelled in different ways for different purposes. Until now, the analysis of
intra-household factors has been constrained by the expense of collecting
detailed and highly accurate information.

Household unified preference function for aggregate policy

The unified preference function, according to which household
members (e.g. parents) are assumed to allocate resources as if they have common
preferences, remains useful for determining the effects of price changes on
demand for basic commodities (i.e. foods or nutrients). This information is
essential to permit governments to use such means as tariffs, support prices, or
export prices to modify the price structure in ways that protect poor families.
For macro or regional policy purposes, a price subsidy to increase food
consumption of a population or a segment of the population can be implemented
with the assumption that households will re-allocate this food to their members.
This is the least expensive approach because household-level income and
consumption data are sufficient.

Health reduced-form relation function

The household unified preference function, however, offers little
information regarding to what extent changes in food prices affect individual
family members (Rosenzweig 1990); for this purpose, individual food intake or
other commodity consumption is needed. Collecting individual food intake data is
difficult and costly (Behrman 1990). In place of food consumption data,
Rosenzweig (1990) and Behrman (1990) suggest using individual biological
outcomes (health or nutritional status) to analyse, for example, how changes in
exogenous factors such as the prices of food or medical services result in
changes in the health of individuals. This is called the "health reduced-form
relation." If policy makers need to know the person-specific demand equations to
analyse the consequences of government policy regarding the welfare of the
individual, this framework can be used.

While the reduced-form relation permits policy makers to estimate
the effects of aggregate policy on individuals, it does not reveal how programme
interventions affect household allocations of inputs to family members.
Decisions regarding which services are most productive with respect to health,
or how food supplementation programmes can improve child nutrition, may require
information obtained by using a framework that investigates household allocation
among members. This framework, according to Behrman (1990), is an attempt
to "peek into the black box" of the family.

This is a household production function whose outcomes are
determined by various inputs. Unlike the "reduced-form" relation, in which
outcomes are determined by exogenous factors (factors that cannot be controlled
by the family), some inputs in this framework are under the control of household
members. This framework is called the "technological/biological relationship
between inputs and outcome indicators" (Rosenzweig and Schultz 1983; Behrman
1990; Rosenzweig 1990).

Estimations using this framework are very sensitive to factors
that are known to family members but unknown to the researchers (Rosenzweig and
Schultz 1983). Household allocation among family members is influenced by
across-household and individual-specific endowments. Researchers should be aware
of the existence of these factors to reach an accurate estimate: for example, a
household with better sanitary conditions will inherently use less health
services; if this factor is ignored, the estimated effect of the health services
would be underestimated. In another example, if a child's perceived intelligence
(endowment) influences the allocation of educational resources, unbiased
anticipated resource effects on the child's schooling will be difficult to
obtain.

A two-stage estimation procedure is commonly used in the attempt
to overcome this problem. The first stage describes the household's "demand" for
the inputs to welfare outcomes such as child health. The second stage estimates
the production functions using predicted allocation based on the demand
estimates. This procedure is very useful for better anticipating how the
allocation of resources within the household will respond to outside changes
induced by government programmes, and how foods and other inputs will directly
affect health outcomes (Rosenzweig 1990). As an example of this two-stage
procedure, Berman, Kendall, and Bhattacharyya (1994) cite the work of Popkin
(1980), who applied this type of model to nutrition in the Philippines to
demonstrate the effects of employment opportunities, for mothers outside the
home, on child care and nutrition.

Such knowledge is important not only for a better understanding of
the ways in which families allocate their resources but also for the design of
family life education and home economics programmes to help families to allocate
their resources better. It requires, however, large quantities of carefully
collected data at both the family and the individual level. These data are
expensive to gather, thereby hindering widespread use of the methods, especially
in large
surveys.

Findings relevant to the family

Much of the economic research bearing on the family is gender
role research, arising from the fact that the main bargainers for family
control are of opposite gender. Feminist issues also enter as, for example, in
the concern of Folbre (1986) that the ways in which economic theory deals with
altruism are sentimentalized by men who fail to see their discrimination against
women or who perceive that women have a "taste" for altruism or voluntary
sacrifice.

Major research findings applicable to the family are
as follows:

1. Equity and adequacy of intra-household allocation of all types
of resources increase as these resources become more adequate.

2. The household's sharing rules shift with any shift in the
resources given to one member, whether child support to a mother, donated food
to a child, or agricultural technology to a male household head (McElroy 1992).
Unless counterbalanced by cultural or legal sanctions, programmes that enable
one gender, either male or female, to earn comparatively more than before will
raise their threat point both for leaving the family union and for demanding a
larger share of services or other household resources from their partners.
Therefore, reduced access to technology for women, who already may be in
subordinate overburdened positions, is a major issue for families in
development.

3. From the cultural side, loosening social controls on the family
that permit men to discontinue their support to wives and children increases the
threat point for these men leaving the family by enabling them to keep more
income for themselves if they leave than if they stay. According to the laws of
the market, these forces will lead inevitably to the progressive detachment of
men from women and children. Absolute insufficiency of wages for men and
inability to live up to cultural ideals for family support contribute to this
detachment.

Where marital disruption rates are high, the risk of being a major
or sole economic support of a household motivates women to enter the labour
force and to take an active role in support of the family, even while coresident
with a spouse (Bruce and Lloyd 1992).

4. Actual earning power or economic profitability to the family of
women in the current generation influences the allocation of food, health, and
educational resources to female children (the next generation).

5. Income in the hands of women has effects on household
expenditure that differ from those of income in the hands of men (Thomas 1990,
1992; Hoddinot and Haddad 1991; Engle 1993). Income in the hands of women is
associated with a larger increase in the share of the household budget devoted
to human capital. The inputs and outcomes measuring human capital in various
studies have included household services, health and education, leisure and
recreation, as well as more quantitative and biological measurements of child
height, weight for height, immunizations, survival, and nutrient intake. In
theory at least, this finding implies that increases in employment opportunities
for women will have a greater positive effect on child welfare (Folbre 1992)
than similar increases for men.

6. The work of poor women for pay both inside and outside the home
has been associated with favourable child nutrition outcomes, if child care and
pay rates are adequate (Engle 1993). This is more true for older than younger
children. Favourable nutritional status of children with alternate child care
while their mothers work may, however, not be matched by equally favourable
cognitive development. Aina et al. (1992) found in Nigeria that two-year-olds
who went with their mothers to the worksite were more malnourished but had
higher cognitive test scores than those left behind with a caregiver.

7. Poor women household heads with low incomes will make great
personal sacrifices to achieve favourable child outcomes (Bruce and Lloyd 1992).
These studies, however, have been done in societies where such women are highly
dependent on their children for future support.

8. Intra-household dynamics differ regionally, with the
predominant cultures of sub-Saharan Africa showing wider divergence from those
of Europe, Asia, and Latin America than these regional cultures from each other
(Bruce and Lloyd 1992; Desai 1992; Kabeer
1992).

Insights regarding family social wellness

Probably most important to social health of the family is the
finding that poverty decreases the altruistic allocation of resources, or the
ability and willingness of the family to satisfy the needs and preferences of
its individual members.

According to Desai (1992), the important task for policy formation
is "to identify the conditions influencing the degree of altruism or
conflict within the family" (key components of social wellness). Very little
research has investigated the explicit conditions under which households
maximize the welfare of all of their members (Kabeer 1992). Desai (1992) calls
for the examination of two sets of conditions, one rooted in the individual
situation, and the second in institutional structures. As an example, Desai
illustrates with data from Latin America that consensual rather than formal
marriages are structures that significantly decrease the degree of family
altruism as reflected by preschool nutritional status. She assumes that this
negative outcome occurs because these less-committed households are less likely
to pool their income.

A transaction cost approach to families

Also bearing on family social health, Pollak (1985) introduced an
approach to viewing the family as a governance structure that applies the
concept of "transaction cost" usually used by firms or institutions. The premise
of transaction cost analysis is that organizations (including families and
households) seek institutional modes for organizing transactions that minimize
transaction costs. This approach expands the NHE recognition of the importance
of internal structure and organization. Unlike the NHE approach, it treats the
family as a governance structure rather than a preference ordering. This
approach links the two debated spheres - the altruistic model and the bargaining
model. This is done by recognizing the advantages of altruism to family
governance in terms of incentives, loyalty, and monitoring; and the
disadvantages to family governance of conflict, different family endowments, and
nepotism.

Pollak's ideas on transaction costs provide a promising
perspective, opening the door to new, broader economic analyses of families, not
just in terms of economic production and consumption, but also in terms of their
structures and the organizational characteristics that govern their activities.
For family policy purposes this approach holds promise; however, it needs
rigorous econometric investigations and has not been adequately modelled. The
application of this approach still awaits further development of this model. In
order to strengthen the management functions of the family as a responsible
agent, the approach by Pollak (1985) to family governance should be further
explored.

Acknowledgement

This chapter has benefited from discussions with Beatrice Rogers,
Ph.D., at Tufts University School of Nutrition, Medford, Mass.,
USA.

Bruce, J., and C.B. Lloyd. 1992. "Beyond Female Headship: Family
Research and Policy Issues for the 1990s." Paper prepared for presentation at
IFPRI-World Bank Conference on Intra-household Resource Allocation: Policies and
Research Methods, 12-14 February 1992, IFPRI, Washington, DC.

Desai, S. 1992. "Children at Risk: The Role of Family Structure in
Latin America and West Africa." Paper prepared for presentation at IFPRI-World
Bank Conference on Intra-household Resource Allocation: Policies and Research
Methods, 12-14 February 1992, IFPRI, Washington, DC.

Kennedy, E., and B. Rogers. 1992. "The Implications of Income and
Household Structure on the Intra-household Allocation of Resources: Evidence
from Kenya." Paper prepared for presentation at IFPRI-World Bank Conference on
Intra-household Resource Allocation: Policies and Research Methods, 12-14
February 1992, IFPRI, Washington, DC.

. 1992. "The Distribution of Income and Expenditure within
the Household." Paper prepared for presentation at IFPRI-World Bank Conference
on Intrahousehold Resource Allocation: Policies and Research Methods, 12-14
February 1992, IFPRI, Washington, DC.

Webb, P. 1989. Intrahousehold Decision Making and Resource
Control: The Effects of Rice Commercialization in West Africa. Working Papers on
Commercialization of Agriculture and Nutrition 3. Washington, DC:
IFPRI.